City staff outline water, sanitary and storm budgets and projected rate steps through 2028
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Summary
Finance and utility staff reviewed water, sanitary and storm utility financials, forecasting a 3% simplified water rate increase in 2026 and 2027 and a larger conventional increase in 2028 to address capital needs; sanitary and stormwater projections vary with Schumacher Creek and MMSD variables.
City finance and utility staff presented the water, sanitary and storm utility budgets and multi‑year rate projections to the Financial Affairs Committee as part of the 2026 budget review.
For the water utility, staff said the utility will propose a simplified 3% rate increase in 2026 (and again in 2027) and planned a conventional rate case in 2028 driven by capital needs. Staff described cash balances declining in the near term because of planned major maintenance (notably water tower painting) and said simplified annual increases in 2026–2029 are intended to rebuild reserves. Staff said total pumpage has stabilized and that non‑revenue water (losses) has fallen below 15% following an aggressive leak detection program started around 2020.
Staff presented a projected 2028 conventional rate increase example of about 16% on the water side if capital spending is financed that year; they emphasized the 2028 projection does not include any lead lateral program costs. City staff said they will monitor federal and state developments on lead lateral funding and adjust plans accordingly.
On the sanitary utility, staff described robust cash reserves (about 150% of annual operating expenditures in the 2026 forecast) set aside in anticipation of the Schumacher Creek project. They proposed holding local sanitary rate increases to 0% for 2026 if external factors (MMSD rate or measured usage) allow; staff said they will return with a recommendation in December or January once MMSD rates and usage projections are firmer. The sanitary forecast assumes a 3% local rate and 3% MMSD increase for planning, but staff noted they may recommend 0% locally depending on final MMSD change and consumption.
Stormwater staff said cash balances have plateaued near 45% of operating expenditures and proposed a modest quarterly ERU fee increase that would raise a single‑family home’s quarterly charge by roughly $3. Staff also discussed shifting some yard‑waste staffing funds into stormwater to support televising and inspection programs.
Committee members expressed concern about a projected large water rate increase in 2028 and asked for clarity on what projects drive that spike; staff said deferred main replacements and large capital needs are the primary drivers and that smoothing increases annually would have been preferable if the regulatory process allowed. Staff noted required EPA notices related to lead and said they are tracking pending legal challenges that could change the city’s obligations.